The federal government’s mining tax advisory group has recommended all current and future state royalties be credited against the new tax and urged the commonwealth to negotiate a deal with the states to stop them raising royalties.

The report by the policy transition group, co-chaired by Resources Minister Martin Ferguson and former BHP Billiton chairman Don Argus, was released by the government on Tuesday afternoon.

Among the 94 recommendations are how to deal with the crediting of state royalties and the exclusion of small miners with mineral resource rent tax profits of less than $50 million.

The PTG said that to preserve the Australia’s international competitiveness there should be full crediting of all current and future state royalties under the MRRT so as to provide certainty about the overall tax impost on the coal and iron ore mining industries.

“Equally, the MRRT should not be used as a mechanism to enable states and territories to increase inefficient royalties on MRRT taxable commodities," the PTG report says.

“Accordingly, the PTG also recommends the Australian, state and territory governments put in place arrangements to ensure that state and territory governments do not have an incentive to increase royalties on coal and iron ore.

“This would limit their negative impacts, while allowing the Australian government’s taxation regime to maximise the return to the community during the highpoint of the resources cycle, so achieving the balanced outcome described above."

Small miners with profits of less than $50 million were excused from the tax, under a compromise announced by the government on July 2.

Related Quotes

Company Profile

To avoid taxpayers facing a very large change in their MRRT tax bill as they cross the $50 million threshold, and likely changes to their production behaviour, the PTG recommends phasing in a taxpayer’s MRRT liability from an annual MRRT profit of $50 million.

The PTG also proposed to establish an implementation group, comprising experts from industry and the tax profession, and officials from the Treasury, Australian Taxation Office and the Department of Resources, Energy and Tourism.

Treasurer Wayne Swan said the government would consider the recommendations of the report in detail and respond in early 2011 following cabinet consideration and discussions with state and territory governments.

The report will also inform the preparation of exposure draft legislation by mid-2011, which will be subject to further consultation.

“We will consider the early establishment of this group to progress the development of the exposure draft legislation," Mr Swan said in a statement.

“The government would like to thank Mr Argus and the other members of the PTG for all their hard work in preparing the report, as well as industry and other stakeholders for their constructive engagement in the process."